Governmental Programs

Social Security

There are a number of sources of income for the disabled individual, not the least of which are government sources.  Both the federal government and the states sponsor programs that may provide disability income.  Let's begin our look at these government programs with a consideration of Social Security disability benefits.

To understand the importance and relevance of Social Security disability benefits to an individual's financial security, it is important to obtain a sense of the likelihood of their being obtained.  In the case of Social Security disability benefits, the likelihood is small since the rejection rate for Social Security disability income benefits usually ranges between 60% and 70%.  It is the definition of disability that results in this remarkably high rejection rate.

 Unlike the definitions of disability that appear in disability income policies, disability is defined -- for Social Security disability income benefit purposes -- as the individual's inability to engage in any substantial gainful activity.  In order to receive Social Security disability benefits, the individual must:

be unable to engage in any substantial or gainful work for at least 5 months before filing a claim, and
have a disability which has lasted or is expected to last at least 12 months or be expected to result in death

Not everyone is even eligible to receive Social Security disability benefits, however.  In addition to being unable to engage in any substantial or gainful work, the individual must:

have worked in a covered occupation, i.e. one in which deductions for Social Security benefits are made, and
be fully insured, which means that the individual must have worked long enough in a covered occupation

The amount of Social Security disability benefits that may be received by the disabled individual depends upon the individual's:

age , and
prior earnings

The individual's average indexed monthly earnings (AIME) and primary insurance amount (PIA) determine the amount of any benefit.  The AIME and PIA are calculated by incorporating the individual's past earnings history and factors that reflect current economic conditions.  

The amount of an individual's benefit also depends upon his or her family status.  A single individual with no dependents would receive a smaller Social Security disability benefit than someone with eligible dependents.

Social Security is the primary federal system providing disability income benefits.   There are several groups of employees, however, who are not included in Social Security coverage:

Federal employees covered under a separate plan
Police covered under municipal plans
Railroad employees covered under the Railroad Retirement Act.

Railroad Retirement Act

Two types of disability benefits are offered by the Railroad Retirement Act. These disability benefits are called disability annuities and are available to employees who have at least 10 years of railroad service.  The two disability annuities under the Railroad Retirement Act are:

The occupational disability annuity, and
The total disability annuity

The Railroad Retirement Act's occupational disability annuity applies if the employee's disability prevents him or her from working in his or her regular railroad occupation.  It is available if the employee meets three criteria.  The employee has:

Not attained retirement age
A current connection with the railroad industry
Completed 20 years of service (or 10 years of service and is at least 60 years old)

The Railroad Retirement Act's total disability annuity applies if the disability prevents the employee from working in any regular employment.  It is available if the following criteria are met.  The employee:

Is under retirement age, and
Has completed at least 10 years of service

Before payments can begin, a five month waiting period that begins the month after the month in which the disability began is required.  Benefits can vary significantly between employees since they are based on months of service and earnings credits.

 State Programs

In addition to the federal programs providing Social Security and Railroad Retirement Act benefits, the states also provide certain disability benefits.  The two principal state programs that provide disability income benefits are:

Workers Compensation , and
Non-occupational Disability programs

Workers Compensation is the oldest social insurance program.  It was initially adopted in Germany in the late 19th century. The sole purpose of the Workers Compensation program is to provide benefits for job-related injuries and illnesses.

Although Workers Compensation is normally considered a state program, certain classes of workers, whose jobs defy state boundaries -- seamen, railroad workers and federal government employees -- are covered under federal Workers Compensation laws rather than state laws.

 Workers Compensation provides an array of benefits in the form of:

cash payments, and
medical and hospital services

These benefits are provided to workers that sustain job-connected injuries or illnesses and are available to every worker.

Workers Compensation benefits are established by law and may be paid by the employer or by its Workers Compensation insurance carrier.  The benefits provided may be scheduled or non-scheduled.

Scheduled benefits are so called because the amount of benefit is set forth in a schedule that indicates the percentage of loss of use and portion of the body affected.  Scheduled losses may involve disabilities to:

· arms, hands or fingers,
· legs, feet or toes,
· eyes, ears or teeth.

Non-scheduled benefits are benefits for injuries or illnesses to parts of the body other than those defined under scheduled losses.  Payment of non-scheduled benefits is based on a percentage of the maximum weekly benefit available and is determined by the extent of the worker's disability.  

The actual schedules vary from state to state in accordance with applicable law.  There is one constant, however, with respect to Workers Compensation benefits: they are limited to those disabilities that are job related.

Disability coverage for job-related disabilities is required in all states. However, only six jurisdictions have compulsory non-occupational disability insurance programs.  These non-occupational disability programs provide short-term financial assistance for disabilities occurring off the job.  Their maximum benefit periods are limited to 6 months.

These six jurisdictions are California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island.

There are four basic characteristics shared by each of the non-occupational disability programs, although the programs otherwise differ to some extent:

Coverage is partly financed by employee contributions
Program benefits are coordinated with other benefits to which the recipient is eligible
The individual must have a work record to be eligible to receive benefits; the definition of "work record" varies among jurisdictions
The coverage is short-term

Each of these programs provides benefits for a maximum period of 26 weeks following a 7-day waiting period.  Since these are state programs, the benefits are mandated by the state and vary widely.  In some cases, they can be as much as 2/3rd of the recipient's average weekly salary to a stated maximum dollar amount.

As we noted, non-occupational disability benefits are usually coordinated with other benefits received.  For example, in New York, private salary or wage continuation plans may disqualify the worker from benefits under New York's non-occupational disability benefit program.